Deal Volume in 1031 Property Exchanges Falls to 12-Year Low

1031 Exchange Transactions Hit Historic Low

The volume of 1031 property exchanges plummeted to $11.9 billion in 2023, marking the lowest level in 12 years. By comparison, transaction volume stood at $9.4 billion in 2012, during the slow recovery following the Great Recession.

After gaining popularity as a tax-deferral strategy post-Great Recession, 1031 exchanges averaged $33.7 billion annually over the next decade. However, rising financing costs and economic uncertainty have significantly reduced investor participation in these transactions.

Federal Reserve Rate Hikes Contribute to Decline

The Federal Reserve raised interest rates from 0.08% in February 2022 to 5.33% in August 2023 to combat inflation. Elevated borrowing costs made it more expensive for investors to reinvest capital gains into new properties, discouraging 1031 exchanges.

Rates remained high until the Fed initiated cuts in September 2024, a shift that could eventually bring renewed activity to the 1031 exchange market. However, the impact of these rate cuts on transaction volume remains uncertain.

Source:CoStar